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Who's Really Getting Squeezed?

STEVE PITSTICK | Nov 01, 2000

Internet sales hurt the most close to home.

The current squeeze in farm margins is causing producers to look for ways to cut input costs. The timing seems perfect for the "input exchange sites" that are popping up all over the Internet, claiming to save the producer 20-30% over local retail prices. But what are we really saving?

An Internet site like XSAg.com is just a clearinghouse for products. It cuts out a middleman or two, which reduces cost. Those savings are passed on to the producer.

The Internet seller could be your local retailer or a retailer hundreds of miles away. With computer technology, the seller can target his desired sales area. He can exclude his home area and sell to the rest of the country at a lower price. The objective for the seller could be to move additional products at his cost to qualify for company volume rebates.

Until now your local retailer had just one or two competitors to price against. Now producers with Internet access will know the lowest available cost of a product. The products available aren't limited to chemicals, but include seed, fertilizer and machinery parts.

What this may do is force retailers to price products at two levels - cash and carry or full service. What is full service? Will we now pay for the once "free" advice?

Full service could be priced much higher than what has been charged for custom application, since there is no product margin left to subsidize that cost. Then the question is, if retailers price full service too high, will that force medium and large operators to buy their own spray rigs? That would cut the retailers' revenue stream even more.

As difficult as it sometimes is for farmers to find a bright light in production agriculture, I think the future may look dimmer for the local retailer. With all Roundup Ready crops and $30 per gallon Roundup from the Internet, who needs a retailer?

Rural America has undergone many changes during the last millennium as necessity and innovation have altered the way we do things. The local grocer and clothing store owner had to deal with change when Wal-Mart arrived. If the Internet becomes ag producers' place for "always low prices," do we put the last nail in the coffin for small-town America?

I think that in our hearts we would like to keep everything just like it used to be - Sam at the corner store and Bob the butcher. But, in our quest to save money, most of us will choose the place with the lowest price even though we have no idea who the owner is.

I'm sure that most areas are like mine and the local ag retailer is a big part of the community, both as a taxpayer and a supporter of the local high school sports team or the 4-H livestock auction. Can we afford to lose this by buying our inputs over the Internet to save a buck? If so, are we as producers ready to fill the ag retailer's shoes by using our own wallets to continue to support the community?